HR MANAGERS who play a key role in establishing a competitive advantage by attracting and retaining skilled workers, by establishing employment relations based on trust and by cultivating a firm’s workforce, can challenge existing shareholder value models in which CFOs traditionally provide boards with information to drive business strategy
HR MANAGERS who play a key role in establishing a competitive advantage by attracting and retaining skilled workers, by establishing employment relations based on trust and by cultivating a firm’s workforce, can challenge existing shareholder value models in which CFOs traditionally provide boards with information to drive business strategy.
Speaking at a recent conference on corporate law, shareholder value and working conditions, Anthony O’Donnell, a research fellow with the University of Melbourne’s Centre for Employment and Labour Relations Law, gave the example of HR practice within Japanese firms, where the function plays a central role.
“Most senior HR executives have not spent their career in HR. They follow a general management career path, working for one company for most of their career and getting assigned to different parts of the organisation and HR is one of their postings,” O’Donnell said.
“The top HR executive is seen as a kingmaker – he grooms executives for top management positions and helps decide who makes it to the insider-dominated board of directors. Typically this person sits on the board as well.
“In Japan, the HR executive is not infrequently in line to become company president. This prominence given to the HR function makes it easier to sustain a focus in the firm on the training and retention of employees.”
He also noted that making short term ‘shareholder value’ the dominant goal for corporate management seems to need flexible employment arrangements that allow for short-term adjustments in overall labour costs.
“Even if managers do not see their primary duty being toward shareholders, they may still feel constrained from making long-term commitments to employees in areas like training or job security because their decision-making horizon is shaped by short-term financial indicators,” he said.
Similarly, mechanisms for employee participation, consultation or collective bargaining might be avoided because they could restrict management’s ability to meet shareholder imperatives.
“We’ve seen plenty of examples in Australia in the past few years where corporate insolvency – including ‘strategic insolvency’ or asset stripping – has left workers high and dry as regards unpaid wages and other outstanding entitlements,” he said.
O’Donnell noted empirical evidence from overseas was mixed. “Financial markets don’t always respond positively, for example, to an announcement of mass redundancies,”he said.
“On the other hand, hostile takeovers, which are often put forward as a key element of a shareholder value-type regime, tend to have pretty negative effects on workers in that corporate raiders often recoup the cost of high takeover premiums through subsequent downsizing.
“Then again, cost reductions brought about by labour shedding might allow for real wage increases for remaining employees, and some employees might benefit, at the point of redundancy or ‘early retirement’, from savings or pension schemes themselves based on stock market investment.”
